Does tiered pricing require more visibility into mobile data usage?

AT&T's tiered pricing plan offers operators a way to monetize surging mobile data usage, but carriers must balance the promise of increasing ARPU with the need to give subscribers visibility into their data usage.

Smartphone users are gluttonous data consumers, and wireless carriers have been eager to put them on a diet. Replacing all-you-can-eat data plans with tiered pricing -- such as the strategy AT&T announced last week -- offers operators a way to monetize surging mobile data usage.

By submitting your personal information, you agree to receive emails regarding relevant products and special offers from TechTarget and its partners. You also agree that your personal information may be transferred and processed in the United States, and that you have read and agree to the Terms of Use and the Privacy Policy.

If, a year from now, data usage quadrupled again, [operators] have such an opportunity [with tiered data] to optimize their pricing plans to make money off that. Sara KaufmanMobile Strategies AnalystOvum

But carriers must balance the desire to up
average revenue per user (ARPU) with the risk of more "bill shock" cases if customers don't have proper visibility into their data usage.

Subscribers understand how many minutes a 10-minute call deducts from their voice plan, and monthly billing statements itemize each call. Text messages carry a flat rate. But existing service plans must offer comparable insight into how many megabytes subscribers consume when loading a website or using a third-party smartphone application.

"It's definitely in the interest of the operators to become more consumer-friendly when it comes to pricing and awareness," said wireless consultant Chetan Sharma. "There are two factors that come into play. One is bad PR -- somebody ends up with an $18,000 bill, and those cases don't look good for the carriers. The second is that the FCC is taking a look into this issue anyway."

AT&T intends to purge its unlimited data plans and replace them with two tiered-pricing models -- DataPlus and DataPro -- which offer 200 MB and 2 GB caps, respectively. When customers' data usage exceeds their plans' caps during a billing cycle, AT&T will charge them a flat fee to add more capacity. The plans cost $15 and $25 per month, down from the $30 per month for the now-extinct unlimited plans. Subscribers can move between the plans without incurring fees.

As part of the tiered pricing announcement, AT&T said 65% of smartphone users currently do not use more than 200 MB a month; it said 98% of smartphone customers don't exceed 2 GB monthly.

AT&T will send free text messages to customers when they approach 65%, 90% and then 100% of their threshold. The carrier has also promoted a mobile data usage monitoring application for smartphones and a data calculator on AT&T's website to help subscribers translate hours of video or numbers of emails into estimated gigabytes.

"It's about providing the customers with information so they can make their own decisions," said Shannon Bell, director of product management for Bridgewater Systems, which has developed a new smartphone app to extend the functionality of its myPolicy controller, giving subscribers a more graphical depiction of mobile data usage and enabling them to set usage limits, send alerts or suspend service.

Going any further -- itemizing every data transaction like a phone call -- might be unrealistic, Sharma said. Other carriers that move to tiered pricing are likely to follow AT&T's strategy for giving customers greater visibility into their mobile data usage, he said.

"This is clearly an evolving area. This is the first step they chose to do, and I think it's a good step that they're alerting consumers at least twice before they hit that limit," Sharma said. "I think the checks and balances are there."

Tiered pricing opens door for higher ARPU

Although no carrier wants to tick off its subscribers, some operators may decide greater mobile data usage visibility doesn't jibe with their higher ARPU aspirations, according to Sara Kaufman, mobile strategies analyst at Ovum.

"Interestingly, this new tiered pricing kind of shifts the operators' motivation," Kaufman said. "They want customers to understand and to not have bill shock … but now that they've moved from unlimited, it's not really in the operators' interest anymore to be helping customers to use less data. Quite the opposite is true."

Operators "now want to encourage" subscribers to use third-party apps more, she said, particularly if it means they'll be paying that extra $10 or $15 per month to extend their capacity.

"That's an area where you won't see attempts to add further clarity because it's not in the operators' interest to throttle people's usage," she said. "I think it was done with the long-term goal of being able to make money off their data services. You can't go anywhere from unlimited. If, a year from now, data usage quadrupled again, they have such an opportunity to optimize their pricing plans to make money off that."

Smaller carriers, without the network pressures AT&T and Verizon Wireless are facing, may stay with unlimited data plans to offer a competitive alternative to the tiered pricing model, Kaufman said.

Sprint Nextel Corp. CEO Dan Hesse personally responded to a subscriber who emailed him to ask whether Sprint would ditch its unlimited plans and pursue tiered pricing, according to Engadget Mobile.

"One can never say 'never,' but we have no plans to change our current pricing," Hesse wrote.

Tiered pricing opens the door for other service offerings, according to William Diotte, CEO of BroadHop, a policy vendor with 60 service provider customers in 25 countries, mostly in emerging markets. Once customers have a limit, service providers can offer them enhanced service or capacity for special events on a pay-per-use basis, he said.

"[Policy] has been used as more of a negative -- an enforcer telling people what they can't do with the network, as opposed to enabling them to make choices and customize their experience," Diotte said. "It's an opportunity to have a new relationship or a dialogue with that customer."

AT&T's move has earned a lukewarm reception from subscribers and pundits, which means that operators which follow suit may have to do some spin control to emphasize the positives for consumers -- lower cost plans, equitable pricing for power users, more flexibility in usage plans -- according to Kaufman.

"It's a bit of a perception change," she said. "It's a matter of changing customers' behavior from being forced to accept overages to making a choice to use more."

E-Handbook

0 comments

E-Mail

Username / Password

Password

By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy